from Persistent to Consistent

EPIC Failure… the post-mortem

Now, I can be somewhat self recriminatory in my remarks so for this post I thought I’d cut that bit out and just stare the EPIC failure of the last week right in the face rather. Let’s just get on with it and see what can be learnt…

The background here is that I thought (mistakenly) that I’d managed to hit on a great strategy which would mean I could start actually turning this journey into something profitable rather than… well, something profitable will do 😉

I guess a certain amount of greed and self confidence took over which led to a large number of significant errors on my part. Again, it’s been a great learning process. So the responsibility for the daft behaviour is all mine and I fully acknowledge this. Now I’m just procrastinating…

28th JUN GBPUSD short, duration: 90 minutes

During this day I pretty much forgot all about the over-riding importance of significant levels and their effect on price behaviour. So with this trade (short from 15950 at about 7am) I completely got ahead of myself with my new (and in my mind) amazing strategy at pretty much the main/previous support level of a 3 month low… Oh dear… I’m trying to short into an area of significant support…

Also just noticed the RSI was in ‘oversold’ territory as well as some divergence on the hourly chart!

Retrospectively what was I doing? Well, I was deep in the grip of indicator madness where I’d gotten myself convinced that my great strategy would work without reference to any contextual information… I’d thrown out the fundamentals of my map analogy that previous events are often repeated…

So after 90 minutes it’s clear the whole trade was going completely in the wrong direction and without understanding why I got myself out of the trade for a 40+ point loss. I’ll come back to the ‘lack of understanding’ bit later… Here’s a close up of the car-wreck 🙂

Due to a complete lack of contextual awareness on my part this trade was destined to fail from day one… Now, if I had got lucky I wouldn’t have learned anything so can’t beat myself up too much.

28th June GBPJPY short, duration 90 minutes

Placed about the same time, again without reference to any ‘external’ understanding about what the previous levels had been… Now this isn’t as blatant as the previous trade but again… if I’d have actually looked Iwould have seen that only two days ago the price reached a 3 month low, was oversold on the RSI and bounced up off 12,818.

Like a mentalist I went short at 12877 in the middle of a trading range… i.e. nowhere near any sort of level… You can see this (retrospectively) on the hourly below.

Again, at 12,890 (cross of red lines) I go short without reference to context of there being a new low at 12818 and the bounce off this has been stronger (steeper up angle) than the previous decline… I’m taking short trades in the middle of a 140 point trading range and expecting to be able to guess which direction the price is headed… Smart or what?! I must be some sort of genius…

This turns into another 40+ point loss when I close it out…

Trades 3+4 when emotion takes over and rationality leaves the building… duration about 10 minutes (on a 1HOUR chart)

So at this point I’ve managed to tank my account by, let’s say 3% and essentially I’m no longer having a good day – I reverse BOTH positions going long on GBPUSD and GBPJPY… now, because I’m no longer thinking with anything other than my terribly confused and fearful ‘lizard brain’ this means as soon as normal market noise puts me at -4pts and -27pts respectively I close them both and proceed to have a really bad day. Don’t worry, nothing you can say can make me feel worse than I already do about this. At this point I still don’t understand what I’ve done wrong and have entered the pit of trading despair…

Still 28th June – ANOTHER GBPJPY short… oh dear… duration 2hrs

I’ve looked at this a number of times now and have no idea why I tried to get back into this from about 10:00 am… All I can think is I saw the price spike up then get clobbered before I entered short. Two hours later I got out for another 40+ point loss… All I can really think when looking at this is that I was now just on edge and in the wilderness emotionally – trying to get my losses back and relying on ‘luck’/chance/a friendly deity… shocking…

Ok, this is starting to get embarrassing… now I’m just throwing shit at the wall and hoping it sticks… I’m not even going to comment on this one. If you want to have a real hoot take a look at this one yourself and see the subsequent 250pt decline. Resistance at 9912, support at 9850 and I’m taking trades right in the middle of it as to which way the price is going to go… what a moron…

Now, in all this I took 1 good trade. Long Gold from 1500.05 at £3 per point. It got to 1515 (ish) slowly and I moved my stop up to 1501 for it to drop back to 1487 or something where it is now.

Thursday saw me make a number of other errors, again without proper reference to the bigger picture… Shorting AUSUSD in the middle of a bullflag range following a huge gain. Shorting USDCHF at the bottom of a retracement following a huge spike.

Now, I don’t mind losing… as long as I learn something… so what did I learn?

That I need to be extremely aware of the context of what’s happening to the price. On this basis alone the last week has been very valuable indeed. What does this mean from a practical perspective…

GBPUSD Example – yes, all my ‘strategy’ indicators are gone.

So on the daily, support at 15912 – 15937 held although the overall trend since May has been down…

On the hourly we have support as well about 15994/16005 but the latest high is around 16120 with a couple of moves in this range to 16,100 and now 16,070

So the price will either drop through 16,100 ish and maybe bounce up again off 15,900 or it could carry on going lower…

Alternatively it might fall back then power off 16,100 (ish) at a higher rate to make a new high above 16.119 heading to 16,250+

Now, if I’d have avoided indicator madness I should have been patient and taken the second bounce long off 15,912 on the 28th… Price drop ends, hits previous resistance, up-trend resumes… In summary…

Falls and then bounces off 16,000/up trend again and then up – long

Carries on up through 16,119 – long

Drops through 16,000 and might stop at 15,912 or drop through – short

Gets to 16,119 again and drops – short

Now the trend up isn’t extremely strong so I’d probably hesitate to trade this to be honest. If someone put a gun to my head I’d want to see what happens at 16,100 or back down at 15,900 before going near this.

If I really had to decide then I’d want the price to drop, bounce off the green trend line again, then I’d go long.

The main point here though is that without being aware of the context of a trade and trying to rely just on indicators… well, for me it’s pretty painful.

With all the above in mind I actually feel more positive about what I’m doing than I have in a while.

This may seem like utter madness given the shocking results over the last week 😉 but really this stems from the fact that I’m learning for myself and not shirking the unpleasant task of seeing what I did wrong (almost everything – lol).

I really did learn a heck of a lot from this episode and hope you can also use these examples to avoid doing the same. Keeping a tight rein on your emotional state is a biggie.

You are not your trade. I got too focussed on the money rather than taking good, risk managed trades. This essentially led to my downfall and I made some dumb errors. Even with this in mind none of these trades were left open by me long enough to develop. Thinking this idea through in advance also helps.

8 thoughts on “EPIC Failure… the post-mortem”

Best psychology book I’ve read is ‘The Psychology of Trading’ by Brett N Steenbarger and also currently reading ‘The Three Skills of Top Trading’ by Hank Pruden which talks about Mental State Management… not go to that chapter yet, obviously 😉

I guess I’m still in the gap between ‘knowing’ and ‘doing’. Currently not ‘doing’ the emotional management as well as I need to… Practice, practice, practice…

“Now, in all this I took 1 good trade. Long Gold from 1500.05 at £3 per point. It got to 1515 (ish) slowly and I moved my stop up to 1501 for it to drop back to 1487 or something where it is now.”…

Robert, don’t fool yourself, this isn’t a ‘good’ trade either, see, you made NO MONEY from it (well just a half point, right?)

Just because the trade moved a few points in your direction means NOTHING. See how many trades will move 15 pts (or more) in the wrong direction, before turning around and making you real profit. Now if you’d anticipated just 15pts profit and banked it, then that would have been a ‘good’ trade.

Why not paper trade ’til you start seeing positive results (unless, of course, you can afford to burn your cash)?

Interesting point you make there… Why was it a good trade in my opinion? Here you go…

1. In the direction of the (overall) trend
2. Based on a bounce off support that held on previous lows
3. Conformed to 1% risk rule
4. I didn’t pay attention to a whole stack of indicator nonsense when making the decision
5. Didn’t lose money where as all previous trades kicked me in the head from the get-go 😉

You’re right, the trade moved a few points in my direction and I moved my stop up. Not correct in hindsight but a useful learning experience.

As for anticipating profits? I don’t think anyone can predict what will happen, you can only manage the position you have relative to your entry, goals, strategy and experience. Maybe I was a little unclear in my post. I managed the entry ok, I managed the exit badly in hindsight – of course this is still me learning!

On your paper trading point… Really, the issue is one of psychology so if it’s not ‘real’ it’s not going to have the same emotional weight as if you’re making a consequence free decision. I know people who’ve been awesome paper traders and then blown out thousands in real money ’cause they can’t do the emotional management side.

“1. In the direction of the (overall) trend” – yes but that trend is breaking down (look at those red bars 23, 24 June following lower high of 22 June, so why so keen to go long?

“2. Based on a bounce off support that held on previous lows” – where is that support? I see support at 1460-ish, 1307-ish.

“3. Conformed to 1% risk rule” okay, but you’re cheating your stop position based on incorrect support levels, so it doesn’t count.

“4. I didn’t pay attention to a whole stack of indicator nonsense when making the decision” okay, but daily RSI has registered low readings at the end of January this year and August last year – coinciding with good entry points.

“5. Didn’t lose money where as all previous trades kicked me in the head from the get-go”
Yes, but it didn’t make any money so it really can’t possibly be called a “good trade” – a learning experience that for once didn’t lose you any dosh… at best.

Awesome feedback to be honest. While uncomfortable to get slapped in the head (yep) I was hoping someone would be able to point out a couple of things I was doing wrong so thanks for that. Can’t disagree with any of your points above.

Will be attempting to post a proper “good trade” as per your criteria soon 😉